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Sustainability of Regional Reserves When Default Is Possible

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  • Romero-Aguilar, Randall S.
  • Miranda, Mario J.

Abstract

We model a regional grain reserve as a game of two countries that agree to pool together a fraction of their grain to cope with production risk, but that can also repudiate their obligations at any moment. The reserve can be operated as a “credit union” or an “insurance union”. We find that although risk sharing is more effective when production shocks are negatively correlated, the regional reserve is more sustainable when the correlation is positive. We also find that an “insurance” game can be more sustainable than a “credit” game.

Suggested Citation

  • Romero-Aguilar, Randall S. & Miranda, Mario J., 2015. "Sustainability of Regional Reserves When Default Is Possible," 2015 AAEA & WAEA Joint Annual Meeting, July 26-28, San Francisco, California 205773, Agricultural and Applied Economics Association.
    • Handle: RePEc:ags:aaea15:205773
    DOI: 10.22004/ag.econ.205773
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    References listed on IDEAS

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    1. Dmitry V. Vedenov & Mario J. Miranda, 2001. "Numerical solution of dynamic oligopoly games with capital investment," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 18(1), pages 237-261.
    2. Muhammad Iqbal & Rashid Amjad, 2012. "Food Security in South Asia: Strategies and Programmes for Regional Collaboration," Chapters, in: Sultan Hafeez Rahman & Sridhar Khatri & Hans-Peter Brunner (ed.), Regional Integration and Economic Development in South Asia, chapter 8, Edward Elgar Publishing.
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    Cited by:

    1. Brockhaus, Jan & Kalkuhl, Matthias, 2015. "Grain emergency reserve cooperation – A theoretical analysis of benefits from a common emergency reserve," 2015 Conference, August 9-14, 2015, Milan, Italy 212767, International Association of Agricultural Economists.

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    More about this item

    Keywords

    Agricultural and Food Policy; Food Security and Poverty; International Development; International Relations/Trade; Risk and Uncertainty;
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